Legal Question in Real Estate Law in California

A lawyer would not advise a client to misrepresent a material fact to a lender, or to withhold requested information. If the lender needs to know, or asks about, the condition of the property being acquired, then you must tell it about the Section 1 repairs, and the fact that you intend to address them. You did not indicate the extent or cost of the work required. The cost of the work may determine whether you have a duty to inform the lender. A high percentage of all properties sold will need some Section 1 work if carefully inspected, and banks expect this and will not usually cancel an otherwise good loan application for small repair jobs.

Mr. Whipple it seems is not active in the real estate lending and transactions market these days. For some reason lenders are being very weird about Section 1 issues. I recently sold a property that had substantial but not massive Section 1 issues. They were about 4.5% of the purchase price of the house, and the buyer was putting over 50% down. Still, BofA pulled the plug on the loan because she wanted a credit back in escrow rather than repair prior to close. Banks have always known that credits back for Section 1 work rarely result in the work being done, but now they seem to be ignoring whether that actually affects the loan-to-value in any meaningfull way, and are requiring clearance of Section 1 before close no matter what arrangements have been made for the work to be done. So although Mr. Whipple is correct that you must tell the bank truthfully the information they ask for, you are under no obligation to create information for them to ask for, or create red flags to cause them to ask for information you already have. You are right to be concerned about removing your contingencies, but at some point in every transaction you have to do that, and generally you are obligated by the standard CAR contract to do so within 17 days of going into contract. If the brokers are willing to do the work, great. What you need is a side agreement with them for the work to be done. Then you also need a contract addendum to go with the contingency removal, providing that you do not have to close escrow until the Section 1 repairs are completed and cleared. Since you have doubts about the honesty of the disclosures, if you have not already done so, you need to have a full top to bottom inspection done by a qualified inspector before releasing the contingencies.